BOV’s decision to pay cash dividends for 2019 could depend on Deiulemar case and bank supervisors

While BOV wants to issue cash dividends to shareholders next year, Chairman Taddeo Scerri has indicated that this might depend on outside factors, including the ongoing Deiulemar court case in Italy, and the bank’s supervisors like the European Central Bank.

Bank of Valletta announced this past week that it will not be issuing cash dividends to shareholders for 2018, and instead will issue bonus shares in the ratio of one for every 10 ordinary shares.

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One of the main reasons for this decision is the uncertainty arising from a number of ‘legacy litigation cases’, the bank had said, which led the board to give top priority to capital conversion “despite its confidence in the robustness of its legal position”. The bank had noted that it intended to resume the regular payment of cash dividends “as soon as prudent judgement allows, and under guidance from its banking supervisors. The bank will always give priority to long term sustainability and stability over short-term benefits and this is in the interest of all stakeholders”, a bank statement had read. It had also highlighted that capital is the bank’s bulwark against future unexpected losses, “and the most efficient way of strengthening capital is to reinvest in the business”.

This newsroom asked Scerri whether cash dividends will be paid to shareholders next year or the year after.

“We need to assess the position in 2019 vis-à-vis the Deiulemar case.” He explained that this does not mean that it is just based on this one case, but it is a major issue. “On 8 March, we presented our defence. We had two reports from two independent Italian economists who certified that Deiulemar was bankrupt. It never had €363 million in assets when it opened trusts with us. They said this clearly. Apart from this, Deiulemar shareholders had a criminal appeal in Rome and the Court decided that in 2004 Deiulemar was already bankrupt as it had €700 million in undeclared liabilities. Our problem is where the case will be heard. Our lawyers have no doubt that the claim is unfounded and that they do not have reason.”

Pressed as to whether it is dependent on this case and what the situation would need to be like in 2019 in order for shareholders not to be paid dividends again, he said: “If there are developments in this case they could either be good or not so good. We will take stock of the situation. Our idea is to distribute dividends, but it does not just depend on us and on how the case of Deiulemar is decided, which is the most serious case the bank has, it also depends on how the supervisors like the European Central Bank see it. The dividends policy of the bank is clear – where there are profits a part is kept to strengthen capital and a part is divided as dividends. While we didn’t issue a cash dividend this year, we gave a bonus share issue which will help the small shareholders alleviate the problem of not receiving cash.”

The Deiulemar case began after liquidators of the Deiulemar shipping company, together with representatives of 13,000 Italian bondholders filed the court application against BOV after they lost their life-savings in the scheme dating back to 2014. €363 million was allegedly held in trusts at BOV by owners of the now defunct shipping giant, Deiulemar, registering losses of more than €800 million. The company went bankrupt in 2012…

Last summer, Scerri and lawyer Henri Mizzi had highlighted that the town where the case is being heard, Torre Annunziata, has a population of around 40,000, 13,000 of whom had lost their life savings because of the company. As such, the bank intended to argue on the point of fair hearing to have the case moved to another location, with representatives explaining that in the criminal trials against the directors of Deiulemar, the cases were heard in other jurisdictions.

Asked by this newsroom this week, whether BOV still intends to have the case moved to a different town, he said “it’s still on the cards”. Asked whether BOV has taken an official decision on making this move request, he said that the bank took legal advice from an English barrister who specialises in the EU Court of Human Rights. “He advised us that we have a strong case and can take the case to another jurisdiction. However, as a board, we have not yet decided. So it is on the cards but we have not yet taken a decision.”